Top three pricing strategy successes of 2012
It’s been quite a year, complete with Gangnam style, a Facebook IPO, and even a looming fiscal cliff. What’s great is that it’s also been quite the year for pricing. More and more businesses are realizing the importance of understanding their value and optimizing their prices over time, especially as many wade through the fog of their “big data” hangovers grasping for some “hair of the dog” in the form of meaningful, actionable insights.
Don’t get me wrong, we’re still the pricing nerds staying at home to crunch economics problem sets on a Friday night (even though we graduated years ago), but at least folks are finally listening when we show them that a 1% improvement in price optimization results in an 11% boost in operating profit. Yea, it’s that huge. We’re not crunching these numbers for nothing.
Enough chit chat though. You’re here to learn. As such, let’s go through three of the biggest pricing strategy wins from 2012, which include attention to design, utilizing a value metric, and culling actionable data directly from target customers.
Pricing success #1: Boosting value with design - Wistia
Every once in awhile you fall head over heels for something. Most of the time it’s a significant other, but for us it’s a pricing page. We've covered them before when chronicling the best pricing pages, but in our minds, Wistia’s pricing page is the equivalent of cuddling up with a puppy and eating a bowl of ice cream after a rough day. It’s that good.
The biggest lesson here is that when you’re designing your pricing page, design truly matters. Take it seriously, because well designed pricing pages result in not only more conversions, but conversions at much higher price points. Wistia took the task so seriously, the crew actually hired an outside architect (the building kind) to approach the process from an entirely different angle.
The bottom line: Your pricing page is the most important page on your site, because everything leads to the gateway to conversion. Don’t skimp on simply copying some template. Truly take the time to build trust and optimize for value.
Pricing success #2: Best use of a value metric - 37 Signals
Our software isn’t built using Ruby on Rails, but that doesn’t mean we don’t love 37 signals. There’s a lot to love about them. After all, they’ve built a monster of a software company by sticking to the fundamentals and simply building great products.
Yet, their beauty, from our standpoint, truly lies in their straightforward, simple pricing that scales along a true value metric, fulfilling the major pricing phenomenon of value based pricing. A value metric is essentially the core units of value the customer is getting out of your product. A proper revenue model scales along these units, meaning if the customer is getting more value out of the product, then the company is charging them more. I can’t stress to you enough the importance of this concept. Utilizing a value metric allows you to capture small, medium, and large customers who embed themselves deeply within your product, because their usage and revenue contributions are growing alongside one another.
The bottom line: Simply put, if you’re not utilizing a proper value metric, you’re leaving money on the table.
Pricing success #3: Culling actionable data - Quirky
Pricing is not easy, which is why we consistently preach that pricing is a process. Yet, many organizations end up breaking down within their pricing process, because they hit a birck wall when it comes to culling target customer willingness to pay data. This breakdown is especially difficult when so many companies hold on to the myth that you should never have pricing and value conversations with customers.
Fortunately, Quirky, the famed crowdsourced industrial design company, went full throttle in the direction of using their user base to guide their pricing. The company relies heavily on their community for coming up with concepts, designing the products, and even determining distribution. For all of these activities, users gain “influence points”, which are useful and redeemable throughout the site. Utilizing the same reward process they use for other feeback, Quirky began to cull ranged pricing data from their users to fuel their own value based pricing engine. In this manner, users get rewarded and Quirky gets real data they can then use to avoid any voids in their pricing process.
The bottom line: Don’t play coy with your customers when it comes to pricing. Bring them into the conversation, but find a creative way to coax the conversation forward to ensure honest feedback.
2012 was a great year, but 2013 is looking to be even better (or at least that's what everyone says). To learn more about how you can join this crew of pricing rockstars, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!